December 2010 was an eventful month for the markets. Nifty reached a low twice in the 5700 levels, and somehow recovered well to close at 6100 levels on the last day of the year.
On the personal front,I celebrated my 30th birthday, which was an eventful non-event in itself.
My trading account nearly remained the same, as the profits of the month, more or less got nullified by the mistakes that I committed. It was not that there weren't opportunities, but it's just that I got caught on the wrong side of the trend, or lacked in discipline.
The massive selloff by the FIIs before they went on their Christmas holidays, presented a lot of quick money making opportunities on the short side. But I missed them all, as I had got my strategy terribly wrong.
On the positive side, there are a lot of learnings that I hope to take forward in the months and years to come. I also spent some time reading from other people's blogs, which provided me with a lot of interesting thoughts.
Here's a list that I could think of. For future reference.
1. Trade with the trend, but not with the crowd. The crowd always piles in late, but the trend is always defined by professionals. And the professionals always profit from the people arriving late.
2. Discipline is a must. Keep SLOs even when the trade is going in your favor. A decently profitable trade turned out to be a moderately loss making one, for me and my friends as we had all not kept SLOs.
3. I feels it's not a good idea to talk much about my ongoing trades or give stock picks.
Why not take or give stock picks? explains just that.
This puts me in a dilemma," should I post my completed trades on this blog in future or not?"
3. A good stock scanner software is a must. This ensures focus, eliminates unwanted distractions and saves time that would have been lost in manually scanning for stocks.
After I installed one, I've been spending a lot less time in scanning for opportunities, and spending more time in analyzing the results thrown up by the scans.
One word of caution here, scans only give results based on the scan criteria that you select. Choosing the best amongst them is your responsibility.
Swing trading stock scans gives a very good stock scanning algorithm. You might have to write the actual scans a lot more differently in the software that you use.
4. Trade only in the consistently well traded stocks. I had 2 bad experiences where I had to take a loss. In the first, the stock didn't move up or down for a long time, even though the charts suggested that it was heading for a fall. In the second, the stock just defied gravity, even when it was up against a very strong resistance around the 200 DMA line.
5. Avoid initiating new trades in the week of F&O expiry. If you look at the 5 minute charts of almost all index stocks in the last half hour of trading in Google finance for expiry day(last Thursday of the month), of the last 3 months, you will know why.
If you have any open trades from the past week, manage them with utmost care.
6. In trading, there is a golden rule, "Cut your losses, but let your winners run". This is something that comes out of discipline and out of experience.
So far, I have been able to cut my losses, but I need to learn to be unemotional, and let my winners run. Trailing stop mechanism is a good way to take out all the emotions out of trading.
7. Coming to emotions, a great trader had once said,"All the candlesticks that you see on a chart are formed as a result of hope, fear, greed and despair". I think I displayed all of these in this month, with pretty bad consequences.
8. Time your entry into a particular stock. Too early, you get stopped out if a reversal doesn't occur before your SLO is hit. Too late, and you get stopped out in the pullback wave. This is true even if all your analysis is 100% right.
9. Use a checklist before you enter any trade. By the time you come to the last point on the checklist, you might have second thoughts on whether to really enter the trade or stay in cash.
I missed using one for some of my trades, and as a result ended up forcing a trade.
10. This is one point that I read in a blog and also observed in some of the trades that I took up.
If you are selling, sell early in the day. If you are buying, buy late in the afternoon.
That's because amateurs control the opening, while the professionals control the closing.
But when there's a lot of activity in a particular stock due to some news, then this statement might not hold good. In such cases, stay away from the crowd. Don't buy/sell the breakout. Wait for a pullback.
Hope to get some good trades for the next month. That's all for now.
Wish you all a very happy and prosperous new year 2011. And happy trading!
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